Derivatives meltdown

Economic Apocalypse

by

Leonard T. Ruggiero

Economics: The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems.

Apocalypse: Great or total devastation; doom: the apocalypse of nuclear war. A prophetic disclosure; a revelation.

Armageddon: The scene of a final battle between the forces of good and evil, prophesied to occur at the end of the world. A decisive or catastrophic conflict.

The Precipice

The world stands today at the brink of an economic precipice unlike anything it has ever faced in the entire history of mankind. Circumstances are already in place which will propel a leap into the chasm pushed by the greed of men in positions of power and influence; men in financial institutions determined to squeeze every last dime of profit from their financial trading activities; men that have devised new ways to manipulate the financial systems to their benefit so they may profit ever more greatly. These events will cause the collapse of entire financial institutions, the cessation of global economic activity, and the total debasement of major nations’ currencies, leading to a world of anarchy and chaos too horrible to contemplate. It is not a question of “If” this collapse will occur, it is only a question of “When.”

The outcome of such a collapse will create an environment like nothing experienced before in human history. A singularly certain outcome will be the failure of paper money to function as an instrument of exchange. In its place, hard metals with intrinsic value, such as gold and silver, will once again, as they did centuries ago, provide the basis of value for commercial and personal financial transactions.

Once the collapse begins, none of the world’s financial institutions or central banks will be able to slow it, never mind stop it. Because of the instantaneous and interconnected nature of global financial trading and communication systems, and also due to the extremely risky nature of existing financial instruments, economic and financial collapse will be nearly instantaneous. Unrecognized for what it is until it is too late to intervene, the unraveling of the intertwined global financial infrastructure will occur regardless of any attempted interventions. Such actions will be futile, unable to accomplish the intended result of arresting the financial calamity.

Such an event is scary, frightening and completely unimaginable. Nonetheless, it will occur. It is beyond our control. It will be a product of the system that has been built as a house of cards. The triggering event will be either the collapse of a hedge fund, a large scale corporate bankruptcy which will cause bond defaults and defaults of associated derivative instruments, or the failure of a large bank or bond house which in turn will cause massive illiquidity among counterparties in derivatives trading.

This sequence of events has already started, and on December 24, 2007, Christmas Eve, no single individual can predict where such events will take us and what the end game scenario will be. We can only wait and watch.